The opinion of the court was delivered by: John Koeltl, District Judge
The plaintiff, the Securities and Exchange Commission ("Commission" or "S.E.C."), seeks an order holding the defendant, Vladislav Steven Zubkis ("Zubkis") in contempt of the Court's June 21, 2001 Final Judgment of Permanent Injunctive and other Relief, including an order of disgorgement in the amount of $21,578,731.39, filed on June 29, 2001. The Commission originally sought a temporary restraining order ("TRO"), and after a hearing on August 11, 2003, the Commission's motion for a TRO was granted. As part of the TRO, the Court ordered a freeze on specific assets of International Brands, Inc. ("IBI")- specifically a yacht and certain escrow accounts. The court appointed a receiver to take control of the yacht. After a hearing on August 26, 2003, the TRO was extended until September 10, 2003. Expedited discovery was authorized and conducted.
Following discovery, the Commission requests an order that would: (1) require Zubkis to turn over the yacht, the escrow accounts, as well as bank accounts of Platinum Management [ Page 2]
Investments Corp. ("Platinum") and International Brands, LP ("IBI LP") to the court-appointed.receiver for liquidation; (2) extend, the current asset freeze order regarding Zubkis's remaining assets; (3) extend the Commission's authority to take expedited discovery regarding Zubkis's remaining assets; (4) continue the receiver appointment; and (5) order Zubkis to cease all de facto and official officer and director activities regarding IBI. A final hearing on the preliminary injunction was held on September 8, 2003. After reviewing the arguments made and the evidence submitted, as well as the numerous submissions of the parties, the Court makes the following findings of fact and conclusions of law.
In February 2000, this Court granted the Commission's motion for partial summary judgment finding Zubkis had committed numerous violations of the federal securities laws. S.E.C. v. Zubkis. 2000 WL 218393 (S.D.N.Y. Feb. 23, 2000). The Court entered a Final Judgment against Zubkis on June 29, 2001. The judgment enjoined him from violating federal securities laws, barred him from serving as an officer or director of a public company, and ordered him to disgorge his ill-gotten gains and prejudgment interest within thirty days of the judgment. The disgorgement order totaled $21,578,731.39. That judgment was affirmed by the Court of Appeals for the Second Circuit on May 20, 2002. [ Page 3]
Zubkis has not yet paid any of the ordered disgorgement. On July 16, 2003 he resigned from his officer and director positions at IBI.
The yacht frozen by the TRO and turned over to the receiver is an eighty-seven foot, steel-hulled yacht named "Ligeia III," and it is berthed in San Diego, California. (Receiver's Interim Report dated Aug. 25, 2003 ("Receiver's Report"), at 1.) The yacht has a cloudy history, but since at least December 1999, the yacht has been held by corporations controlled by Zubkis. On December 29, 1999, the yacht was transferred by its owner, Christopher Renwick, to Platinum Management Investments Corp. ("Platinum"). Zubkis accepted the yacht on behalf of Platinum as its attorney-in-fact. (Deposition of Vladislav Steven Zubkis dated August 29, 2003 ("Zubkis Dep."), at 93.) The yacht was Platinum's sole asset, as it is now. (Id. at 104.) In March 2000, all of Platinum's stock was acquired by Kona Beverage Company, Inc. ("Kona"). (Id. at 95-96; Fourth Supplemental Declaration of John J. Graubard dated Sept. 3, 2003 ("Fourth Graubard Decl.") ¶ 6 and Ex. D.) Kona was in turn owned by Z3 Capital, and Zubkis owned at least ninety percent of the stock of Z3 Capital. (Zubkis Dep. at 96, 148) Kona had no other assets besides Platinum. (Id. at 99.) In March 2001, IBI acquired all of Platinum's stock from Kona, in exchange for 46 million shares of IBI stock. (Id. at 99-100; Fourth Graubard Decl. ¶¶ 7-8 and Exs. E and F.) Zubkis concedes that the 46 million shares of IBI [ Page 4]
Stock went to him because he owned Z3 Capital and Z3 Capital owned Kona. (Zubkis Dep. at 83.)
Zubkis now claims to hold approximately 140 million shares of IBI stock. (Zubkis Dep. at 83-84.) Although it is unclear exactly what percentage of IBI's stock Zubkis owns, Zubkis claims to-be IBI's single largest shareholder. (Id. at 85-86.) IBI's headquarters are located at Zubkis's residence. (Id. at 129.)
Since Zubkis resigned from his officer and director positions at IBI on July 16, 2003, IBI has had a succession of four separate presidents. (Deposition of William Hales dated Sept. 2, 2003 attached as Ex. C to Fourth Graubard Decl., at 32.) William Hales, the third of the four presidents, was previously IBI's senior vice president for finance; Hales testified that he was unable to describe what kind of business IBI is engaged in, the companies that IBI owns, or IBI's revenue for the last year. (Id. at 9, 23-24.) The most recently appointed chief executive of IBI is Mack Hilber, who testified that he has been associated with IBI at various times for more than five years. (Deposition of Mack Hilber dated September 2, 2003 attached as Ex. B to Fourth Graubard Decl., at 3.) However, Hilber testified that he had no knowledge respecting IBI's assets, whether IBI owned any bank accounts, or IBI's financial statements or balance sheets. (Id. at 42-43.)
The escrow accounts frozen by the TRO are held at Laurel Hill Escrow Services, Inc. The escrow accounts are owned by IBI. [ Page 5]
(Zubkis Pep. at 114-15.) Zubkis'controlled the escrow accounts until they were frozen by the Court's order, including the period after he resigned his officer and director positions at IBI, and he directed that checks be drawn on those accounts. (Fourth Graubard Decl. ¶ 9 and Ex. G.) Zubkis concedes that many of the transfers he authorized from the escrow accounts went to his wife, Alia Zubkis. (Zubkis Dep. at 129.) Records supplied by Laurel Hill indicate that the transfers Zubkis made to his wife total in the tens of thousands of dollars between May 2003 and the time the accounts were frozen.*fn1 (Third Supplemental Declaration of John J. Graubard dated Aug. 26, 2003 ("Graubard Third Decl.") ¶ 4 and Ex. A; Fourth Graubard Decl. at I 9 and Ex. G5.) Zubkis contends that, the transfers to his wife were made pursuant to an agreement he had with IBI, whereby he would draw no salary from IBI but the company would pay his living expenses, including rent and utilities at his home. (Zubkis Dep. at 129.) During the same period, Zubkis caused checks amounting to over $20,000 to be drawn on the escrow accounts for yacht maintenance and improvements. (Fourth Graubard Decl. ¶ 9 and Ex. G.)
International Brands, L.P., ("IBI LP") is a limited partnership whose general partners are IBI and Zubkis. (Zubkis Dep. at 61-62.) Account number 11555-01027 at Bank of America is held in the name of International Brands, L.P. ("IBI LP [ Page 6]
Account"). From 2001 to 2003, Zubkis directed Laurel Hill to transfer more than $200,000 from one of the escrow accounts owned by IBI to IBI LP's Bank of America account. (Fourth Graubard Decl. ¶ 10 and Ex. H.) During the same period, Zubkis ...